Identify the letter of the choice that best completes the statement or answers the

question.

1. Which of the following involve a trade-off?

a. Taking a nap
b. All of these answers involve trade-offs.
c. Watching a football game on Saturday afternoon
d. Going to university
e. Buying a new car

2. Trade-offs are required because wants are unlimited and resources are
a. economical.
b. unlimited.
c. efficient.
d. marginal.
e. scarce.

3. Economics is the study of

a. how society manages its unlimited resources.
b. how to reduce our wants until we are satisfied.
c. how society manages its scarce resources.
d. how to fully satisfy our unlimited wants.
e. how to avoid having to make trade-offs.

4. A rational person does not act unless

a. the action is ethical.
b. the action produces marginal costs that exceed marginal benefits.
c. the action produces marginal benefits that exceed marginal costs.
d. the action makes money for the person.
e. none of these answers.

5. Raising taxes and increasing welfare payments

a. reduces market power.
b. proves that there is such a thing as a free lunch.
c. improves efficiency at the expense of equity.
d. none of these answers
e. improves equity at the expense of efficiency.

6. Suppose you find €20. If you choose to use the €20 to go to a football match, your
opportunity cost of going to the game is
a. nothing, because you found the money.

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b. €20 (because you could have used the €20 to buy other things) plus the value of your
time spent at the game.
c. €20 (because you could have used the €20 to buy other things) plus the value of your
time spent at the game, plus the cost of the dinner you purchased at the game.
d. €20 (because you could have used the €20 to buy other things).
e. none of these answers

7. Foreign trade
a. none of these answers.
b. increases the scarcity of resources.
c. makes a country more equitable.
d. allows a country to have a greater variety of products at a lower cost than if it tried to
produce everything at home.
e. allows a country to avoid trade-offs.

8. Since people respond to incentives, we would expect that, if the average salary of
accountants increases by 50% while the average salary of teachers increases by 20%,
then
a. fewer students will take degree courses in accounting and more will take education
courses.
b. fewer students will take degree courses in education and more will take accounting
courses.
c. fewer students will attend university.
d. none of these answers.

9. Which of the following activities is most likely to produce an externality?

a. A student eats a hamburger in the student union.
b. A student reads a novel for pleasure.
c. A student sits at home and watches T.V.
d. A student has a party in her room in the student hall of residence.

10. Which of the following products would be least capable of producing an

externality?
a. inoculations against disease
b. cigarettes
c. food
d. education
e. stereo equipment

11. Which of the following situations describes the greatest market power?
a. Subaru’s impact on the price of cars
b. a farmer's impact on the price of corn
c. Microsoft's impact on the price of desktop operating systems

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d. a student's impact on college tuition

12. Which of the following statements is true about a market economy?

a. With a large enough computer, central planners could guide production more efficiently
than markets.
b. Market participants act as if guided by an invisible hand to produce outcomes that
maximize social welfare.
c. The strength of a market system is that it tends to distribute resources evenly across
consumers.
d. Taxes help prices communicate costs and benefits to producers and consumers.

13. Workers in Western Europe enjoy a high standard of living because

a. the countries of Western Europe have set high minimum wage rates.
b. unions in Western Europe keep the wage high.
c. none of these answers.
d. the countries of Western Europe have protected their industries from foreign
competition.
e. workers in Western Europe are highly productive.

14. High and persistent inflation is caused by

a. unions increasing wages too much.
b. OPEC raising the price of oil too much.
c. governments increasing the quantity of money too much.
d. regulations raising the cost of production too much.

15. The Phillips curve shows that

a. the business cycle has been eliminated.
b. an increase in inflation temporarily increases unemployment.
c. inflation and unemployment are unrelated in the short run.
d. a decrease in inflation temporarily increases unemployment.
e. none of these answers.

16. An increase in the price of beef provides information which

a. provides no information because prices in a market system are managed by planning
boards.
b. tells consumers to buy less pork.
c. tells producers to produce more beef.
d. tells consumers to buy more beef.

17. Which of the following is not part of the opportunity cost of going on holiday?
a. the money you spent on a theatre show
b. the money you could have made if you had stayed at home and worked

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c. the money you spent on airline tickets
d. the money you spent on food

18. Productivity can be increased by

a. improving the education of workers.
b. raising union wages.
c. raising minimum wages.
d. restricting trade with foreign countries.

19. Which of the following is most likely to produce scientific evidence about a theory?
a. A lawyer employed by Renault addressing the impact of air bags on passenger safety.
b. An economist permanently employed at a leading university analysing the impact of
bank regulations on lending to small businesses.
c. An economist employed by the Trades Union Congress doing research on the impact of
trade policy on workers' wages.
d. A radio talk show host collecting data from listeners on how capital markets respond to
taxation.

20. Which of the following statements regarding the circular-flow diagram is true?
a. If Susan works for BAe Systems and receives a salary payment, the transaction takes
place in the market for goods and services.
b. If BAe Systems sells a military aircraft, the transaction takes place in the market for
factors of production.
c. None of these answers.
d. The factors of production are owned by households.
e. The factors of production are owned by firms.

21. In which of the following cases is the assumption most reasonable?

a. To address the impact of taxes on income distribution, an economist assumes that
everyone earns the same income.
b. To address the impact of money growth on inflation, an economist assumes that money
is strictly coins.
c. To model the benefits of trade, an economist assumes that there are two people and two
goods.
d. To estimate the speed at which a beach ball falls, a physicist assumes that it falls in a
vacuum.

22. Economic models are

a. usually made of wood and plastic.
b. built with assumptions.
c. useless if they are simple.
d. created to duplicate reality.

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23. Which of the following is not a factor of production?
a. labour
b. land
c. money
d. capital
e. All of these answers are factors of production.

24. Points on the production possibilities frontier are

a. inefficient.
b. normative.
c. unattainable.
d. efficient.
e. none of these answers.

25. Which of the following will not shift a country's production possibilities frontier
outward?
a. an advance in technology
b. an increase in the labour force
c. an increase in the capital stock
d. an increase in unemployment rate

26. Economic growth is depicted by

a. a shift in the production possibilities frontier outward.
b. a movement from inside the curve toward the curve.
c. a shift in the production possibilities frontier inward.
d. a movement along a production possibilities frontier toward capital goods.

27. Refer to Exhibit 6. If the economy is operating at point C, the opportunity cost of
producing an additional 15 units of bacon is

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a. 40 units of eggs.
b. 10 units of eggs.
c. 20 units of eggs.
d. 30 units of eggs.
e. 50 units of eggs.

28. Refer to Exhibit 6. If the economy were operating at point E,

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a. the opportunity cost of 20 additional units of eggs is 10 units of bacon.
b. the opportunity cost of 20 additional units of eggs is 20 units of bacon.
c. the opportunity cost of 20 additional units of eggs is 30 units of bacon.
d. 20 additional units of eggs can be produced with no impact on bacon production.

29. Refer to Exhibit 6. Point F represents

a. none of these answers.

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b. a combination of production that can be reached if we reduce the production of eggs by
20 units.
c. a combination of production that can be reached if there is a sufficient advance in
technology.
d. a combination of production that is inefficient because there are unemployed resources.

30. Refer to Exhibit 6. As we move from point A to point D,

a. the opportunity cost of eggs in terms of bacon falls.

b. the opportunity cost of eggs in terms of bacon rises.
c. the opportunity cost of eggs in terms of bacon is constant.
d. the economy becomes less efficient.
e. the economy becomes more efficient.

31. Which of the following issues is related to microeconomics?

a. the impact of oil prices on car production
b. the impact of money on inflation
c. the impact of technology on economic growth
d. the impact of the deficit on saving

32. Which of the following statements about microeconomics and macroeconomics is

not true?
a. The study of very large industries is a topic within macroeconomics.
b. Macroeconomics is concerned with economy-wide phenomena.
c. Microeconomics is a building block for macroeconomics.
d. Microeconomics and macroeconomics cannot be entirely separated.

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33. Which of the following statements is normative?
a. Large government deficits cause an economy to grow more slowly.
b. People work harder if the wage is higher.
c. The unemployment rate should be lower.
d. Printing too much money causes inflation.

34. In making which of the following statements is an economist acting more like a
scientist?
a. A reduction in unemployment benefits will reduce the unemployment rate.
b. The rate of inflation should be reduced because it robs the elderly of their savings.
c. The unemployment rate should be reduced because unemployment robs individuals of
their dignity.
d. The state should increase subsidies to universities because the future of our country
depends on education.

35. Positive statements are

a. macroeconomic.
b. microeconomic.
c. statements of description that can be tested.
d. statements of prescription that involve value judgments.

36. A perfectly competitive market has

a. firms that set their own prices.
b. only one seller.
c. at least a few sellers.
d. many buyers and sellers.
e. none of these answers.

37. If an increase in the price of blue jeans leads to an increase in the demand for
tennis shoes, then blue jeans and tennis shoes are
a. complements.
b. inferior goods.
c. normal goods.
d. none of these answers.
e. substitutes.

38. The law of demand states that an increase in the price of a good
a. increases the supply of that good.
b. decreases the quantity demanded for that good.
c. decreases the demand for that good.
d. increases the quantity supplied of that good.
e. none of these answers.

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39. The law of supply states that an increase in the price of a good
a. none of these answers.
b. increases the quantity supplied of that good.
c. increases the supply of that good.
d. decreases the demand for that good.
e. decreases the quantity demanded for that good.

40. If an increase in consumer incomes leads to a decrease in the demand for camping
equipment, then camping equipment is
a. a normal good.
b. none of these answers.
c. an inferior good.
d. a substitute good.
e. a complementary good.

41. Which of the following shifts the demand for watches to the right?
a. an increase in the price of watches
b. none of these answers
c. a decrease in the price of watch batteries if watch batteries and watches are complements
d. a decrease in consumer incomes if watches are a normal good
e. a decrease in the price of watches

42. All of the following shift the supply of watches to the right except
a. an advance in the technology used to manufacture watches.
b. an increase in the price of watches.
c. All of these answers cause an increase in the supply of watches.
d. a decrease in the wage of workers employed to manufacture watches.
e. manufacturers' expectation of lower watch prices in the future.

43. If the price of a good is above the equilibrium price,

a. there is a surplus and the price will rise.
b. there is a shortage and the price will fall.
c. there is a shortage and the price will rise.
d. the quantity demanded is equal to the quantity supplied and the price remains unchanged.
e. there is a surplus and the price will fall.

44. If the price of a good is below the equilibrium price,

a. there is a shortage and the price will rise.
b. the quantity demanded is equal to the quantity supplied and the price remains unchanged.
c. there is a shortage and the price will fall.
d. there is a surplus and the price will rise.

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e. there is a surplus and the price will fall.

45. If the price of a good is equal to the equilibrium price,

a. there is a shortage and the price will fall.
b. the quantity demanded is equal to the quantity supplied and the price remains unchanged.
c. there is a surplus and the price will rise.
d. there is a shortage and the price will rise.
e. there is a surplus and the price will fall.

46. An increase (rightward shift) in the demand for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. none of these answers.
c. an increase in the equilibrium price and a decrease in the equilibrium quantity.
d. a decrease in the equilibrium price and an increase in the equilibrium quantity.
e. a decrease in the equilibrium price and quantity.

47. In general, a flatter demand curve is more likely to be

a. price elastic.
b. unit price elastic.
c. none of these answers.
d. price inelastic.

48. In general, a steeper supply curve is more likely to be

a. price elastic.
b. none of these answers.
c. unit price elastic.
d. price inelastic.

49. If a supply curve for a good is price elastic, then

a. the quantity supplied is sensitive to changes in the price of that good.
b. the quantity demanded is insensitive to changes in the price of that good.
c. the quantity demanded is sensitive to changes in the price of that good.
d. the quantity supplied is insensitive to changes in the price of that good.
e. none of these answers.

50. A price floor

a. always determines the price at which a good must be sold.
b. sets a legal maximum on the price at which a good can be sold.
c. is not a binding constraint if it is set above the equilibrium price.
d. sets a legal minimum on the price at which a good can be sold.

51. Which of the following is an example of a price floor?

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a. the minimum wage
b. rent controls
c. restricting petrol prices to €1.00 per litre when the equilibrium price is €1.50 per litre
d. All of these answers are price floors.

52. The burden of a tax falls more heavily on the sellers in a market when
a. both supply and demand are elastic.
b. both supply and demand are inelastic.
c. demand is inelastic and supply is elastic.
d. demand is elastic and supply is inelastic.

53. Consumer surplus is the area

a. below the demand curve and above the price.
b. above the supply curve and below the price.
c. above the demand curve and below the price.
d. below the supply curve and above the price.
e. below the demand curve and above the supply curve.

54. A buyer's willingness to pay is that buyer's

a. minimum amount they are willing to pay for a good.
b. producer surplus.
c. consumer surplus.
d. maximum amount they are willing to pay for a good.
e. none of these answers.

55. Producer surplus is the area

a. below the supply curve and above the price.
b. below the demand curve and above the supply curve.
c. below the demand curve and above the price.
d. above the demand curve and below the price.
e. above the supply curve and below the price.

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